Introduction to Management Case Study: Pizza2Go

This case study is fictional and has been partly built using facts from real companies.

Pizza2Go is a Vietnamese pizza chain with a network of franchises and over 50 retail stores
nationally. It has been hailed as a success story since its launch in 2005. In just over a
decade, Pizza2Go shares have surged more than 2500 per cent, making it one of the best
performers on the market and making a lot of people wealthy. In 2016 the company
generated total revenue of VND 202,747,000,000.

Background of Pizza2Go

Pizza2Go has the world's biggest pizza menu with more than 2,000 options, helping
boost Pizza2Go sales to more than 1 million pizzas annually with a guarantee to
Deliver pizza within 25 or 30 minutes. Pizza2Go business model is based on franchisees
growing sales, not profit, with head office taking a royalty from every sale as
Vietnamese chomp through 20 thousand of its pizzas every week. Stores are bought and
sold on a multiple of these sales, not on profit. The more stores in the network, means more
sales are generated, which results in more profits for head office.

Pizza2Go selects its franchisees carefully, those who genuinely believe Pizza2Go is a highly
profitable business. However, when the store is not profitable franchisees are held to blame
for bad business management. The stress of making ends meet took its toll on many
franchisees who realised the business they had bought into was not viable, due to the
company policies, especially on labour costs and a perception that the head office was only
concerned about the welfare of people at the corporate level. Whilst Pizza2Go profit is
doubling the cost of pizzas is getting cheaper due to high competition in the fast-food sector.
However, this cheap cost of pizza is borne by the franchisees who are struggling to make a
decent profit due to them not being able to pass on the increasing high costs of running the
stores.

Understanding the CEO

Pizza2Go CEO Mrs Nguyen believes the only way a business can deal with challenges is to
work out ways of turning a negative into a positive. For example, legislation on employee
conditions has forced up Pizza2Go labour costs 50% over the next four or five years. “But that
means people are getting better paid, which means the company is holding on to its
employees for longer”, she says. The result: delivery times have reduced from 32 to minutes
to 24. Also, there are fewer mistakes in store and staff members are more engaged.

Mrs. Nguyen uses encouragement and training programs to engage and motivate staff. “We
incentivise people through a range of systems to become better pizza makers, better dough
makers, to become more skilled delivery drivers. There are training classes and we time you
and you go through tests and you get different badges on your shirt and so on.” Pizza2Go
staff respond to her nurturing leadership with loyalty. As a reward every year Mrs. Nguyen
takes her top team to the Silicon Valley in the USA to view new technologies that could be
introduced into the Pizza2Go business.

Worker unhappiness

The reality of life inside Pizza2Go is not what is portrayed to the general public. Many
workers are unhappy due to widespread underpayment of wages and not always paying
staff their full entitlements was found to be standard practice across many stores. Hard-
working staff made few tips and often suffered abuse and danger while delivering food to
strangers. Affected workers were reluctant to speak out for fear of retribution.

It took Pizza2Go store manager Mr Long three years to get the courage to inform head
office that his boss Mr Thap, who was also one of its biggest most powerful franchisees
and a member of Pizza2Go influential Franchisee Advisory Committee, was exploiting
workers. Mr Thap ran 10 stores on the Ho Chi Minh City area. Mr Long remembers working
long hours without a break in suffocating heat, with no air conditioning working close to a
200-degree oven. "I had to bring in a fan because it was so hot.” "I was so stressed all the
time," he says. Mr Long said he worked between 50 hours and 60 hours a week but that his
pay slips often showed he worked 40 hours as anything above 43 hours would attract
penalties. This had the effect of denying him overtime payments for extra hours he worked.
"I was told the money would be made up when we get a good day, but that didn't happen. I
was very nervous and afraid working in the stores. If the sales weren't good I would be
shouted at," he says. "Once I was told I 'would be put in the oven' he was so mad," he said.

Franchisees

After claims of unlawful conduct by franchisees were made to head office, Pizza2Go
audited its stores and terminated four franchisees for wage fraud. The audit uncovered "a
strong likelihood of unlawful and fraudulent behaviour, driven by greed", including
manipulation of worker shift hours by the franchisee, breach of payroll conditions and
practices, not paying overtime, not paying the correct hourly rate. Pizza2Go said it has
"zero tolerance" for worker exploitation and will take action against anyone caught
deliberately underpaying workers.

Why were some franchisees acting like this? As competition intensified with other rival food
chains, a number of franchisees describe the head office system as "dictatorial" with its
ongoing demands to make record profits. Franchisees reported being very stressed losing
hundreds of millions of Vietnam Dong. They weren't making money unless they were
cutting costs. Franchisees were being asked to pay more and more ongoing fees, sell
100.000vnd pizzas and make them in increasingly record times - all of which put pressure
on staff and franchisees.

Mr Long reported Mr Thap to head office shortly after he quit his job in April 2017. The long
hours, poor pay, and heat exhaustion finally got to him. He never heard back from Pizza2Go
and never received back pay.

ITM concepts covered in class this case relates to:

Stakeholder theory/Power/Ethics/Organizational culture from topic 1 to 5
You must follow the marking rubrics structure when writing your case study analysis